Vietnam Woos Foreign Investors Despite Ongoing Political Purge

27 Apr 2018

Asia Pacific

Political and Economic Risk Consulting

Vietnam Woos Foreign Investors Despite Ongoing Political Purge

The political contentions and factionalism at the top of the Communist Party of Vietnam (CPV) have ensnared isolated investors and will continue to do so in the coming year. At root, the struggles are about micro-managerial rights over policy and commercial decisions within the existing political order. They are not about taking Vietnam in a fundamentally different direction. Within that existing order, once the matter of who is taking the decisions has been settled, the actual answers are predictable and – for the most part – need not alarm business or foreign investors.

Calling the shots with increasing authority is CPV General-Secretary Nguyen Phu Trong. The most visible plotlines within the much-discussed anti-corruption drive he has led have targeted the residual networks of former prime minister Nguyen Tan Dung, uprooting officials in government ministries, banks and state-owned enterprises, with even Politburo member Dinh La Thang now facing years in jail. Dung’s former allies will remain in the firing line, as will deals or transactions they approved during the Dung years.

This means several Politburo members are unlikely to be sitting comfortably in the year ahead. By most accounts, former State Bank of Vietnam governor Nguyen Van Binh, current Hanoi Party Chief Hoang Trung Hai and Minister of Public Security To Lam could be next among Trong’s possible targets. A lesser known second plotline, more consequential than the Dung purge, involves the Trong faction’s apparent efforts to induce the early retirement of President Tran Dai Quang, or at least to scuttle his rumored intentions to take General Secretary Trong’s position in 2021 (when Trong will retire) for himself or, more likely, a younger and healthier ally.

To thwart President Quang, Trong’s anti-corruption drive has been trained on Quang’s previous stomping ground, the Ministry of Public Security (MPS), the country’s state security apparatus. Senior generals and MPS-linked businessmen reputedly linked to Quang have been implicated in several scandals, probably with the objective of discrediting the President. These two layers of politicization will inevitably entail more investigations and arrests. They will impact on economic interests, and often unknowing foreign investors, to which the targeted officials can be connected, even distantly. Adding the MPS into the fray puts typically benign-looking sectors at potential risk: livestock, food processing, logistics or small-scale retail businesses could be drawn in next, along with the clearly politically risky sectors of banking, real estate and large industrial ventures that were signed off in 2012-15. Highly unpredictable, only the most well-informed foreign investors would see politically-driven investigations coming, or understand their origin and implications.

Yet while these relatively isolated dramas play out, the Vietnamese government, and the policy and commercial decisions it continues to make – with respect to foreign investment access, state asset privatizations, and trade liberalization – will remain stable and predictable. Those issues are not contentious, unless vested interests come into play. When they do, the government, and notably Prime Minister Nguyen Xuan Phuc, appears more ready than in the past to face them down. Trong’s main factional allies seem to come from structural CPV branches such as the Central Inspection Commission and the Central Organisation Commission, rather than tainted veteran political networks or politically-connected companies, and so are less prone to acting in service of private commercial interests.

The open-for-business demeanor can be seen in the progress made in the equitization (privatization) of state entities in the last 6-9 months, and especially with its divestment of a 53.6% stake in the beer company Sabeco to ThaiBev, a deal that would surely only be possible with highest-level facilitation. Other state IPOs, a precursor to equitizations, have been oversubscribed and, by some accounts, notable for atypically transparent and communicative interaction between investors and the often deal-averse Vietnamese targets. Examples include the three PetroVietnam subsidiaries and industrial estate developer IDICO. Big money deals involving foreign capital and private conglomerates such as Vingroup attest to wider interest in Vietnam.

Beneath the higher-profile political arrests there have been thousands of less conspicuous disciplinary actions doled out to little-known and often genuinely errant state officials. And beneath the big-ticket equitizations and private sector joint ventures, deals and investments of more modest size have surged. There is more substance to the anti-corruption drive than mere political purges. And the ambitions of the current government go beyond creating and kicking political corpses from among the old guard and future challengers. The likes of Trong and Phuc can reasonably claim to have delivered on creating conditions and deal-specific opportunities for foreign investment. They currently face no significant challenges to their position, or to such business-related decisions.